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Switching Costs And The Foreign Firm'S Entry


In this paper we consider a two-period model of market entry with homogeneous products and switching costs. It is shown that the pro-competitive effect of a foreign firm's entry (i.e. unilateral trade liberalization) emerges before the entry. Also, conditions that are conducive to a competitive environment in the second period are shown to yield a less competitive outcome in the first period. That is, when the marginal cost of the foreign entrant is relatively low, the first-period output of a domestic monopolist is relatively low as well. Copyright � 2009 The Author. Journal compilation � 2009 Blackwell Publishing Ltd and The University of Manchester.

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Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 77 (2009)
Issue (Month): 3 (06)
Pages: 366-372

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Handle: RePEc:bla:manchs:v:77:y:2009:i:3:p:366-372
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  1. To, Theodore, 1994. "Export subsidies and oligopoly with switching costs," Journal of International Economics, Elsevier, vol. 37(1-2), pages 97-110, August.
  2. Toru Kikuchi, 2007. "Switching costs and the impact of trade liberalization," Economics Bulletin, AccessEcon, vol. 6(6), pages 1-7.
  3. Collie, David & de Meza, David, 2003. "Comparative advantage and the pursuit of strategic trade policy," Economics Letters, Elsevier, vol. 81(2), pages 279-283, November.
  4. James Brander, 1980. "Intra-Industry Trade in Identical Commodities," Working Papers 380, Queen's University, Department of Economics.
  5. Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 515-39, October.
  6. Roger Clarke & David Collie, 2003. "Product differentiation and the gains from trade under Bertrand duopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 658-673, August.
  7. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
  8. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
  9. Markusen, James R., 1981. "Trade and the gains from trade with imperfect competition," Journal of International Economics, Elsevier, vol. 11(4), pages 531-551, November.
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